Certificate of Deposit in India
CDs are negotiable money market instrument issued in demat form or as a Usance Promissory Notes. CDs issued by banks should not have the maturity less than seven days and not more than one year. Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.
CDs are like bank term deposits but unlike traditional time deposits these are freely negotiable and are often referred to as Negotiable Certificates of Deposit. CDs normally give a higher return than Bank term deposit. CDs are rated by approved rating agencies (e.g. CARE, ICRA, CRISIL, and FITCH) which considerably enhance their tradability in the secondary market, depending upon demand. SBI DFHI is an active player in secondary market of CDs.
Features of CD
- All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs.
- They can be issued to individuals, corporations, trusts, funds and associations.
- NRIs can also subscribe to CDs, but on non-repatriable basis only. In secondary market such CDs cannot be endorsed to another NRI.
- They are issued at a discount rate freely determined by the issuer and the market/investors.
- CDs issued in physical form are freely transferable by endorsement and delivery. Procedure of transfer of dematted CDs is similar to that of any other demat securities.
- For CDs there is no lock-in period.
CDs are issued in denominations of Rs.1 Lac and in the multiples of Rs. 1 Lac thereafter. Discount/Coupon rate of CD is determined by the issuing bank/FI.Loans cannot be granted against CDs and Banks/FIs cannot buy back their own CDs before maturity.